Has the Canary in the Coal Mine Found Bottom?
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“When you find yourself in a hole, stop digging.” – Will Rogers
Ever since I took ownership of my own investments over a decade ago, I have never really given much consideration to the coal names. Even though I spent most of my life in Kentucky, the business of the coal industry had always left more than seemingly inescapable black dust on my mind. From the company executives that presided over the mines and their personnel like they were rulers from a previous century, to the disgusting treatment of this beautiful country, strip mining majestic mountains leaving them looking like third-degree burn victims.
I am an enormous believer in the existence of Karma in this universe, clinging to the tenet that what goes around truly does eventually come around. Coal stocks have had a rather tough road of sledding in recent years, leaving me wondering if there is ever going to be a bottom to the dark abyss some of these holdings have experienced. But actually finding that eventual share price nadir can be a difficult and often painful search, so I prefer to scale my entries; if I get a dollar-cost-averaged spot close to whatever the 52-week low eventually becomes, that’s fine with me.
Arch Coal Inc. (NYSE: ACI) has weathered the worst of the gaudy group, which has my Karmic mind wondering if they ever broke child labor laws, ultimately leading to their current stock performance. Arch entered a promising first quarter of 2012 after a year to forget, with a -59% performance for 2011. The stock hasn’t been able to gather any support, slipping another -62% year to date. The current price around $6 seems to be coming off the lows of their 52-week range ($5-$21), and even falling off the wrong side of the mountain from March 2011 highs around $36. The cliff dive has sent the dividend yield to an accidentally “respectable” 2%, paying those shareholders still around 12-cents per share annually.
CONSOL Energy Inc. (NYSE: CNX) has performed the “best” of the bunch I’ll be mentioning, shedding “only” -26% year to date, after a salty -28% return in 2011. Thanks in large part to their involvement with high thermal coal and natural gas production, the company has washed off the soot better than others. CONSOL is also moving off 52-week lows ($26-$47), but is at almost half of their March 2011 highs around $55 per share. The current price puts the yield at 1.7%, paying investors 12.5-cents every quarter. The company has temporarily ceased two mines due to the slowdown and abundance of metallurgical coal. In a recent press release, they stated that with the lower demand for steel across the globe, so too, falls the need for the raw materials to produce steel. Not exactly positive sentiment.
Another company halting operations, in a more permanent fashion, Peabody Energy Corp. (NYSE: BTU), recently decided to shut down one of their mines in Indiana. Peabody has been a dreadful performer, as well, down 41% year to date, after a -48% return for 2011. They also appear to be coming off 52-week lows ($19-$50), but frighteningly off April 2011 highs around $73 per share. Their current trading level puts the dividend yield at 1.6%, doling out 34-cents per share on a yearly basis. I’m actually mildly interested in Peabody, as they have been undertaking efforts to convert coal to natural gas. It’s something to keep an eye on, as these companies need to change with the times in order to keep their businesses viable. But word broke recently that Peabody pulled their Wilkie Creek thermal coal mine off the market, sources citing an inability to fetch a fair price as the reason.
Coal companies have been pummeled the last few years, resulting in returns that give portfolios a bad case of black lung. I’m not exactly certain we’ve seen the worst of what’s to come, either. The continued industrial slowdown has sent coal prices spiraling down a dark chasm, and these companies have followed suit. It will be interesting to tune in to Peabody’s earnings call next month (October 22nd), and listen carefully for any sort of guidance. They may very well have reached a bottom, and from the company’s actions, it looks like they’ve stopped digging.
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